Is It Time to Make a King-Sized Bet on Bed Bath & Beyond?

OK, OK, I get it. The third-quarter performance and outlook for Bed Bath & Beyond (NASDAQ: BBBY  ) were a bit disappointing. However, does that mean the stock deserves to be shot down mid-flight? Following slightly disappointing but otherwise solid results, the stock price has been punished by nearly 20%. When compared to other housewares companies such as J.C. Penney (NYSE: JCP  )  and Macy's (NYSE: M  ) , Bed Bath & Beyond appears to be quite cheap.

Bed Bath & Beyond results
On Jan. 8, Bed Bath & Beyond reported its third-quarter results. Net sales jumped 6% to approximately $2.9 billion. Same-store sales bumped up 1.3%. Net earnings per diluted share leaped 8.7% to $1.12, though analysts had been expecting $1.15 per share. The company continued its stock-buyback program, with $171 million in repurchases during the quarter and $1.7 billion left under the current program. Over the last two years, the company used 86% of its cash flow for share buybacks.

Going forward, Bed Bath & Beyond lowered its fiscal fourth-quarter guidance a little bit. The company had previously been expecting earnings per share of between $1.70 and $1.77 and now expects it to be in the range of $1.60 to $1.67. This translates to full-year earnings per share of between $4.79 and $4.86 compared to between $4.88 and $5.01 before. It also sees 2% to 3% same-store sales increases versus the 3.5% to 5.5% it previously expected.

While nobody likes to see a 2% to 3% reduction in earnings estimates for the year, it's not quite the end of the world, as you'd think from the way the stock price reacted. It still represents around a 5% increase over last year, and analysts now expect earnings per share of $5.36 for next year. With a stock price of around $65 per share, this is a P/E of 12. This P/E seems cheap, especially considering the company has shown consistent growth and aggressive share buybacks, and others in this space trade with much larger P/E ratios.

J.C. Penney and Macy's
There is not a single analyst out of 21 of them that believes J.C. Penney will earn anything even close to a net income for the fiscal year ending 2015.  In fact, the most optimistic analyst of the group is looking for a net loss of $350 million.  In order for J.C. Penney to get a P/E of 12 in a similar valuation to Bed Bath & Beyond, the company would have to earn over $150 million or half a billion more than the most optimistic analyst.  J.C. Penney hasn't reported its official earnings for the holiday quarter yet, but I wouldn't hold my breath in terms of finding any evidence of earnings of that magnitude coming any time soon if ever.  

Meanwhile, Macy's hasn't reported it holiday quarter yet either, but the company did give preliminary notice that same-store sales jumped 3.6% during November and December.  Still, analysts only expect sales growth to be 1.2% for the fiscal year and 2.8% for next year.  This compared to 5.9% and 4.9% respectively for Bed Bath & Beyond.  Both Macys and Bed Bath & Beyond trade with forward P/E ratios of 12.  This suggests you get more potential sales growth for the same price of earnings with Macy's. 

Foolish final thoughts
In case I haven't made it clear, I believe the sell-off in Bed Bath & Beyond is way overdone and now represents a compelling value, especially when compared to others in the housewares industry. The company continues to aggressively buy back shares, and the cheaper price means even more shares will be bought back and retired, further raising long-term earnings on a per-share basis. Fools should take a closer look at the company... especially if the stock price slips any further.

Sleep on this
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

 


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2812904, ~/Articles/ArticleHandler.aspx, 12/19/2014 10:17:43 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement